Jack Henry & Associates
Radityo Ardi Nugraha
John Sun
RCMP Position
Purchase Date: Nov 11, 1999
 # Shares purchased: 200
 Stock splits date: Mar 3, 2000 and
Mar 5, 2001
 Currently owned shares:

# shares: 800
 Base Price: $9.00


Constitutes 5% of all current holdings
Stocks Facts

Current Shares Price: $22.20

Market Cap: $2.01B

52wk Range: $17.40 - $23.77

P/E (ttm): 22.59

Div & Yield: 0.22 (1.00%)
Company History

In 1976, Jack Henry and Jerry Hall found Jack
Henry & Associates in Monet, Missouri

In 1985, Jack Henry & Associates became public,
traded at NASDAQ

In 1992 had a mission to expand its customer
base and breadth of offerings through strategic
development and acquisition of additional
technology solutions

By 1995 Jack Henry offered ATM and imaging
solutions, and outsourced data processing
solutions.
Company History (cont.)

Started in 1992, in order to grow, Jack Henry began to
acquire companies that provided complementary products
and services to its own core customer base and companies
that offered products and services to a broader range of
client types and sizes.

In fiscal year 2005, Jack Henry acquired 8 companies, which
are: Tangent Analytics, LLC ($4M), RPM Intelligence, LLC
($6.2M), SERSynergy ($34.5M), TWS Systems, Inc.
($10.9M), Optinfo, Inc. ($15.1M), Verinex Technologies, Inc.
($35m), Select Payment Processing, Inc. ($12M), and Banc
Insurance Services, Inc.($6.7M)

In fiscal year 2006, Jack Henry acquired Profitstar Inc
($19.3M).

Jack Henry counts over 8,700 financial institutions as
customers
Company Business

Provides data processing solutions to small
banks and credit unions (assets under $30
billion).

Customers either install systems in-house
or outsource their operations to Jack
Henry.

3 sources of revenue:



Software licensing
Support and Service
Hardware
Business Description

Core Systems



Can be used in-house or outsourced.
Provide core processing functionality: deposits, loans,
etc.
5 core systems:
 Silverlake System: for banks with $500 million to $30
billion in assets
 CIF 20/20: for banks with less than $1 billion in assets
 Core Director: for banks with less than $1 billion in
assets (Windows-based)
 Episys: for credit unions with greater than $50 million
in assets
 Cruise: for credit unions with less than $50 million in
assets
Business Description (cont.)

Complementary Products
Allow the company to offer customtailored, integrated suites of software
solutions.
 Expose the company to high-growth
areas, like security, risk management,
online bill pay, and electronic funds
transfer.
 Product offering expanded through
acquisitions.

Business Description (cont.)

Examples of complementary products






Synapsis: Relationship management (customer
profiling, referral tracking, etc.)
NetTeller: Online home banking system with
real-time account information and transaction
capabilities.
Remote Deposit Capture: Peforms image
capture, storage, and processing for paper
checks.
PassPort: Drives and monitors ATM networks.
Biodentify: Biometric fingerprint security.
Centurion Disaster Recovery: Disaster recovery
protection
Major Competitors

Fidelity national Information Services
(FIS) with $6.7B Mkt. Cap

Fiserv Inc. (FISV) with $7.6B Mkt.
Cap
Macro Economic Overview

GICS Sector: Information Technology

Sub-industry: Application Software



Stable industry outlook. Spending expected to accelerate
slow growth (around 5%)
Commoditization of software industry. Competition from
international (Indian, Eastern European) developers.
Peer Group: Accounting and Financial Software


Consolidation: Number of commercial banks has declined
by 4% annually over past five years. Credit unions have
consolidated at the same rate.
Sarbanes-Oxley compliance a major information
technology hurdle and source of IT spending.
Year
5/11/2006
11/11/2005
5/11/2005
11/11/2004
5/11/2004
11/11/2003
5/11/2003
11/11/2002
5/11/2002
11/11/2001
5/11/2001
11/11/2000
5/11/2000
11/11/1999
Price
Stock Market Performance
Share Price History
80
70
60
50
40
30
20
10
0
Stock Market Performance (cont.)
Revenue by Segment



Hardware – comprises a smaller
percentage of total revenues due to low
margins and stiff competition from other
players
License – Grows as a slowing rate as
trends in bank consolidation limits new
customers
Support – Grows to be a majority of
Revenue due to higher margins and crossselling potential / higher growth ceiling.
Revenue by Segment
Revenue by Segment
$1,400,000.00
$1,200,000.00
Revenues
$1,000,000.00
$800,000.00
Hardware
Support and service
License
$600,000.00
$400,000.00
$200,000.00
$0.00
1999
2000
2001
2002
2003
2004
2005
Year
2006
2007
2008
2009
2010
2011
Profit by Segment
Gross Profit by Segment
$700,000.00
$600,000.00
Gross Profit
$500,000.00
$400,000.00
Gross Profit hardware
Gross Profit services
Gross Profit license
$300,000.00
$200,000.00
$100,000.00
$0.00
1999
2000
2001
2002
2003
2004
2005
Year
2006
2007
2008
2009
2010
2011
Modeling and Forecasting
2-tier modeling approach
 Full model from 2007-2011
 Reduced Model from 2011-2015 (8%)
 Terminal Growth = 4%
 3 Scenarios – Upside, Base case,
Downside

Modeling and Forecasting

Upside:
No setback, steady revenue growth
matching highest historical rate
 Overhead costs as % of revenue declines
at historical rate to a resonable terminal
rate
 Associated acquisitions and business
costs grow at a slower rate

Modeling and Forecast

Base Case:
Semi-steady revenue growth – some
setbacks/periods of economic decline
 Overhead costs remain constant as % of
revenues
 Acquisitions and business costs grow at
slowing historical rate to a reasonable
terminal rate

Modeling and Forecasting

Downside:
2007, 2008 general economic slow
down, marked by a period of revenue
decline and much lower margins
 Recovers by 2009
 Growth rates slow at a faster rate as
revenues increase YoY.

Sensitivity Analysis
Revenue Projections
0.2
0.18
0.16
0.14
% Growth
0.12
Downside
0.1
Basecase
Upside
0.08
0.06
0.04
0.02
0
2002
2003
2004
2005
2006
2007
Year
2008
2009
2010
2011
DCF Valuation

Final Year (2006) Free Cash Flow =
$126,682
Caused by dramatic decline in working
capital
 Not likely to continue as a trend

DCF Valuation
Upside - $23-24
 Base Case - $16-18
 Downside - $13+
 “Fair Value” - $15-21

Recommendation
JKHY currently trades at 22.27
 Above high end of DCF “fair value”
projections
 Sell 400 shares at market to recover
our investment.
 Remain long 400 shares as company
is still a well-managed, but fully
valued opportunity.
